Investment-Highlights: Development in Saudi Arabia

The Kingdom is currently undergoing a legislative reform process that aims to transform the way business, trade and investment is carried out in the Kingdom, and creating one of the most dynamic investment landscapes in the world. Saudi Arabia's National Investment Strategy (NIS), launched in 2021, maps the Kingdom’s course towards becoming a global investment hub for business and talent by 2030. Heightened transparency, more clearly defined rights and responsibilities, and a robust legislative framework shall open new opportunities for foreign and domestic investors. The NIS establishes investment targets and introduces a raft of initiatives, already being felt in the economy.

Saudi Arabia’s upward economic trajectory continued in Q2 2022, supported by a strong post-pandemic recovery and growing investor interest thanks to implemented reforms and the launch of the NIS. The Kingdom was ranked as the seventh most competitive economy in the G20 by the International Institute for Management Development (IMD) in June this year, beating major economies such as Japan, India and France. Sixty-three economies were assessed and ranked based on their economic wellbeing and survey responses from executives. The Kingdom’s improvement on its 2021 ranking was largely attributable to advances in economic performance, government efficiency, business efficiency and infrastructure.

The Kingdom’s economic diversification efforts are paying dividends, with all non-oil activities showing a positive trend during Q1 2022. For example, the wholesale and retail trade, restaurants and hotels activity showed the biggest gain in Q1, expanding by 6.3% year-on-year. However, the mining and quarrying sector is still the one showing the largest growth with 20.4%.

Flash estimates of real GDP growth show a further acceleration to 11.8% year-on-year in Q2 2022, the highest rate since 2011. Both the oil and non-oil activities of the economy showed significant gains during the period.

Also the Kingdom’s total reserve assets remain stable amid global downturn. The Kingdom holds the fifth-highest foreign exchange reserves among the G20. Supported by high global oil demand and strong growth of non-oil exports, Saudi Arabia's foreign exchange reserve assets increased 4.2% year-on-year to $466.7 billion in June this year - a figure which, after falling slightly in February, has remained steady across the second quarter and reached a peak level for the first time since March 2020, when the pandemic began. Saudi Arabia thus has the fifth highest foreign exchange reserves among the G20 economies, ranking ahead of Germany.

In April 2022 the government published the draft of the new investment law, which will allow local and global investors to be treated equally. The draft law introduces a broad range of innovations that shall catalyze investment across the economy.

Saudi Arabia entered 2022 from a strong year in terms of foreign direct investment (FDI) inflows, with an increase of 257.2% in 2021 on an annual basis. This momentum was maintained in Q1 2022, which witnessed an FDI inflow of $1.97 billion (SAR 7.37 billion) with an increase of 9.5% on an annual basis.

As Saudi Arabia increasingly positions itself as attractive investment destination, licenses for foreign investors were also issued in a number of sectors in Q2 2022. The Ministry of Investment oversaw the signing of investment deals worth a total of $925 million (SAR 3.46 billion). A total of 4,455 investment licenses were issued in Q2 2022, a 673.4% increase over the 576 licenses issued in Q2 2021. This growth is likely due to new regulations promoting FDI in the Kingdom, as well as continued work to enforce the anti- commercial concealment law (Tasattur). The wholesale and retail trade sector in particular received much interest, with 2,713 licenses issued to investors with an increase of 1450.3%. Among the top three are the construction sector, where 528 licenses were issued, representing an increase of 514%, and the manufacturing sector, where 349 licenses were issued, representing an increase of 232.4%. At the same time, however, it should be borne in mind that there has been a decrease compared to the Q1 2022, when a total of 9,383 licenses were issued.

In June 2022, the Council of Ministers approved a new Companies Law, which will go into effect in 2023. Following over two and a half years of research and evaluation, the new legislation is a significant enhancement to the Kingdom’s investment environment, introducing greater flexibility to the legislative framework. Already, the Kingdom of Saudi Arabia offers the GCC’s biggest consumer market. A collection of factors combine to support the future expansion of FDI to Saudi Arabia, ranging from demographics to government strategy.